We will soon see who wins and loses in new tax laws

Editorial by Wilmington Star-News, December 31, 2013.

Happy New Year, maybe. Thanks to a Republican-led overhaul of the state tax code, North Carolina residents will either pay less in taxes in 2014, pay more, or perhaps see little change in their take-home pay. It may take a few months to determine in which category you fall.

Corporations and the top 20 percent of earners will likely see the largest benefits, while many in the bottom 80 percent will either pay more or see a much smaller income tax cut. But wait, that's not the whole picture.

Gone is the three-tiered tax schedule with income-based rates ranging from 6 percent to 7.75 percent, replaced by a flat 5.8 percent rate that falls to 5.75 percent in 2015. But it's only part of the package.

The Honorables and Gov. Pat McCrory also expanded sales taxes to include admissions to sporting events, concerts, theaters, museums and attractions, as well as service contracts. A 7 percent sales tax on electricity will mean slightly higher bills for consumers, but repealing the current 3 percent tax on power companies' gross receipts – a sales tax of sorts, in reverse – is expected to bring Duke Energy and its Raleigh-based Progress division millions of dollars in additional revenues in 2015.

The legislature also eliminated most exemptions and tax credits, including the Earned Income Tax Credit, which benefited lower-paid workers, while substantially increasing the standard deduction for individuals and married couples. Whether the increase offsets the loss of the EITC and personal exemptions will depend on individual circumstances. Overall, the liberal N.C. Budget and Tax Center estimates the changes will result in higher state taxes for most of the lower 80 percent of taxpayers, while the top 20 percent will reap 80 percent of the tax savings.

The governor and lawmakers who supported the tax overhaul argue that it will put more money into people's pockets and create jobs. In large part, they are staking their political futures on the theory that flattening the tax rate, increasing standard deductions, reducing the corporate tax and taking away exemptions that helped middle- and lower-income residents will help the state complete its slow climb out of the recession.

Who's right? Stay tuned.

Average voters may not be experts in government budgeting, but they will know soon enough whether these changes help or hurt their families. Politicians who wish to hold onto their jobs after 2014 would be wise to listen closely to all the feedback – from the fiscal losers as well as the winners.